Business Feature

Israeli VC Remains Bullish, Foreseeing $10b Companies

Managers of the Aleph venture capital fund, who include American immigrants committed to Israel’s success, believe that Israeli high-tech owners have changed their approach and are beginning to think long-term.

Michael Eisenberg, founding partner of the venture capital fund Aleph.
Ofer Vaknin

Many eyebrows were raised last April when the Aleph venture capital fund announced the addition of a new partner. It wasn’t so much the act of adding a partner, which Israeli VCs may rarely do, but who it was – Aaron Rosenson, a 26-year-old American. Most senior VC figures are 40 or older.

Until that point, Rosenson was an unknown in the Israeli VC industry. He immigrated to Israel from New York to assume his new role, joining Eden Shochat and Michael A. Eisenberg.

When we met the partners in the fund’s office at the WeWork compound in Tel Aviv’s Sarona neighborhood, they arrived in dress more befitting American college students than VC executives – jeans and sweatshirts. The message they projected was clear – we are for the entrepreneurs and not on the side of the square capitalists.

It is also the message the fund is telegraphing to Israeli entrepreneurs – support of the entrepreneurial community for the benefit of all. The fund does this in meetings it arranges for directors of growing companies, a hack-a-thon for developing tools for entrepreneurs and publishing an Excel sheet with contact details and investment priorities of private investors, known as angels, in Israel.

The goal was to find a partner who would expand the network of contacts and the perspective of partners in Israel. “Out of the 150 candidates we looked at, we brought three to Israel,” says Eisenberg. “We took them rappelling and to a pool to get to know the people. One of the three was Aaron, who came through a recruiter. He immediately remarked that he was not yet 26, but, as he put it, he has no off-button. Initially, we went out for lunch in Manhattan, after which I called Eden and told him we had someone. That was six months ago, and we have spent a lot of time together since.”

‘Good for entrepreneurs’

Rosenson may be defined as an equal partner in the fund, but Aleph refuses to share details about the distribution of the profits that will come from exits of companies in which the fund invested before he came onboard, though he will now be involved in their activities.

Eisenberg notes that he started his VC career at the early age of 24. “I am pretty sure that to be young with an invigorated mind that is in touch with trends is good for entrepreneurs,” he says. “I always joked that Mark Zuckerberg could not have worked in the Prime Minister’s Office because it requires a certain level of academic education and a certain age. We live in a period which changes so quickly that young people have an advantage.”

Shochat adds that experience in an American fund provides experience that you can’t learn in an Israeli fund.

Before joining Aleph, Rosenson worked at Insight Venture Partners for four years. The fund has raised over $13 billion, investing in growth-stage software, internet and data-services companies. Its investment portfolio includes high flyers like Twitter and Alibaba, as well as the Isareli company Wix, in which Eisenberg invested while he was a partner at the VC firm Benchmark.

Rosenson was part of the fund’s New York-based investment team, involved in a variety of software companies. “I had an opportunity there to speak with thousands of companies, starting from the non-revenue generating stage to companies that were post-IPO,” says Rosenson. “I got to know many companies at all kinds of stages – some succeeded and some didn’t. We were one of the most active investors in companies in the growth stage. Thus, I was exposed to a large data set of what works and what doesn’t, and how to help companies grow.”

The most prominent company in which Rosenson was an investment partner was Docker, which operates in the field of container technology. He is signed onto eight deals covering the first and second rounds of investment. Likewise, he served as an adviser to companies in which the fund invested in strategic acquisitions. “I accumulated much experience in a short time span,” he asserts, adding that exposure to Insight’s investment model explains his ability to achieve partnership in a leading fund at such an early age.

Creating sustainable companies

Rosenson didn’t move to Israel without some experience here. He spent a year in Israel in 2011, studying at the Darchei Noam yeshiva in Jerusalem after finishing his studies at the University of Pennsylvania’s Wharton business school.

“We have all had opportunities to work at American funds,” says Eisenberg, who also emigrated from the United States. “We decided that we wanted to do it here so Israeli companies would succeed and leave a mark on the world. We are committed as a company to build a country.”

Aleph began investing three years ago, raising $140 million. Eisenberg arrived after a stint at Benchmark and Shochat came from Genesis Partners, where he was one of the initiators of the Junction project, an accelerator for early-stage start-ups. The fund has since invested in 10 companies, six of which have completed their second round of funding or more.

One of the central ideas on which Aleph is based is establishing sustainable technology companies in Israel. The fund was founded just a month after Google acquired Waze for $1 billion. It was not clear at the time whether Israeli companies were only good for exits. However, dozens of Israeli entrepreneurs have since proved that they can build major companies with annual sales of tens of millions of dollars and employ a substantial number of workers.

“At the time the Waze deal happened, it was not clear that it was possible to build major companies in Israel,” says Shochat. “Now it’s a fact. We built a fund that can serve this goal. The fund supports a company for 12 years (compared to the usual 7-10 years,) of which there is an investment period of six years to demonstrate to the entrepreneurs that we have patience and will find the best investors to build a big company.”

Shochat says he recently received a one-line email from an investor in Silicon Valley who wrote that he was looking to invest up to $50 million. “Growth stage investors who are located in Silicon Valley and New York fly to Israel to compete for second and third rounds of investment because there is a lot of competition there,” he says. “At this stage, they invest according to balance sheets and profit and loss reports.”

The investment stage on which Aleph is focused is Round A. One of its most exceptional investment is in the joint work space startup WeWork. “We want to earn 100 times our investment in one of these companies,” says Eisenberg. “I did the first round four-and-a-half years ago in WeWork, which is today worth $16 billion. I also sat in the room when we in Benchmark made the initial investment in Snapchat and in Uber five years ago. No one knew then that they would be $10 billion companies.”

Eisenberg says there has never been an objective problem in building a $10 billion company in Israel, but rather a problem of attitude. “We believe in this now – that there are connections, funding and markets,” he says. “This industry is teaching people to think long-term, and it is changing the country. For the first time, people are speaking about building a global business that will still exist for Israel’s 100th anniversary celebrations. You can do everything in Israel today thanks to the internet. Instead of the caravans and nomads of King Solomon’s time, we have internet cables.

‘Helping entrepreneurs tell their story’

Still, Aleph’s partners note some challenges en route to building a $10 billion dollar company. “More engineers are needed – lower the barriers and bring in engineers and experienced, mid-level managers,” says Eisenberg. “Companies like eBay, PayPal and Cisco trained generations of mid-level managers.”

Another area that requires improvement, according to Eisenberg, is the storytelling ability of Israeli entrepreneurs. “Businesses are built from a good story for users and the press. It is an ability that is not appreciated enough in Israel,” says Eisenberg. “Some are born with it and some learn it. We are improving. It is critical to companies. In our opinion, we can help entrepreneurs tell their stories better.”

Rosenson says that a story based on statistics helps raise money for growth. He stresses that it has to be real to understand how to communicate the value that one’s company creates.

“There is much work ahead, and there is a need to teach the market so that there will be companies worth $10 billion in five years,” says Shochat. “At the end of the day, Israel is very special. It is a new kibbutz to a certain degree, a community that everyone in it wants to help. We need to provide the space and opportunity to help one another. It will create the companies.”